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Rex’s ordinary unsecured creditors – including airports, suppliers, and ground handling agents – will receive nothing under its proposed sale to American firm Air T, the administrators have confirmed.
In their report released on Monday night, the voluntary administrators from EY Australia recommended the approval of the Air T deal despite the lack of return to ordinary unsecured creditors, saying it would nonetheless achieve a better outcome than Rex Group being wound up.
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“The reason for our opinion is that the liquidation of the Rex Group and the subsidiaries would result in significant job losses, trigger crystallisation of employee entitlements and significantly impact the continuation of the Rex Regional business,” they wrote.
“The DOCA also provides a return to secured creditors and payment in full of employee entitlements to non-continuing employees.
“The DOCA will also result in a continuing business relationship for many unsecured creditors and in any event unsecured creditors of the Rex Group would be no worse off than in a liquidation scenario. Unsecured creditors of the subsidiaries are immaterial and will be paid in full.”
According to the administrators, both secured creditors – including the Australian Government – and priority unsecured creditors (including former and current employees) would receive better returns from the Air T purchase than they would under a liquidation scenario, while returning Rex Group and its subsidiaries to its directors would be inadvisable, as the companies are insolvent.
“Although the proposed DOCA provides no return to ordinary unsecured creditors, this return is no worse than that likely to be achieved in circumstances where the Rex Group is wound up,” they wrote.
“Ordinary unsecured creditors will at least have the opportunity to benefit from a continued business relationship with the Rex Group if the DOCA is accepted.”
The administrators also recommended that Rex Airlines Pty Ltd (RAL), which had operated Rex’s failed domestic jet venture, be wound up.
“Our reason for this opinion is that RAL is insolvent and will require the formal mechanism of liquidation to undertake investigations and distribute the available recoveries (if any) to creditors,” they wrote.
“A liquidator will be able to conduct detailed investigations into the conduct of Directors and the financial affairs of RAL.
“The funds received from the sale of RAL’s assets will be applied in part payment of the secured debt due to the Commonwealth.
“As the proceeds will be insufficient to discharge the Commonwealth debt in full, there will be no funds available to provide for a return to priority or unsecured creditors of RAL.”
Administrators concluded that the group had likely been insolvent from as early as 20 July last year, which “coincided with the failed negotiations” for the sale of the domestic operations; it entered voluntary administration at the end of that month.
“The Rex Domestic business had been incurring significant losses including Indicative Operating Cash (IOC) losses of $46m in the last twelve months to 31 March 2024 and $32m in the last twelve months to 31 March 2023,” they wrote.
“The IOC losses appeared to have absorbed most of the Companies’ available cash and were funded through working capital (mainly the stretching of trade creditors and prepaid airfares).”
Air T, which has access to a large store of Saab 340B parts, has pledged to return more of Rex’s regional fleet to service if the deal goes through.
